Reverse Charge Mechanism (RCM) Under GST Explained

Reverse charge mechanism (RCM) under GST is the rule that shifts the liability to pay tax from the supplier to the recipient, instead of the usual arrangement where the seller charges GST and remits it. It exists mainly to bring tax into the net on supplies from unregistered or hard-to-track suppliers, and on a specific, government-notified list of goods and services regardless of who supplies them.

What reverse charge means

Under the normal, forward-charge model, a supplier charges GST on their invoice, collects it from the buyer, and remits it to the government. Reverse charge flips that responsibility onto the buyer: the recipient of the goods or services works out the applicable GST themselves and pays it directly, without the supplier ever charging it.

The mechanism serves a specific compliance purpose — it lets the tax authority collect GST even when the supplier is unregistered, hard to reach, or operating in a sector where compliance has historically been weak, by making the (typically better-organised, registered) recipient responsible instead.

The two families of RCM

RCM applicability generally falls into two distinct categories, and it is worth keeping them separate because they are triggered by different things.

• Notified goods and services. The government maintains specific notifications listing goods and services on which RCM applies regardless of whether the supplier is registered. Commonly cited examples of services under this route include legal services provided by advocates, services by a director to their company, and goods transport agency services where the transport agency has not opted to pay under forward charge. On the goods side, certain raw and unprocessed inputs and — more recently — metal scrap supplied by an unregistered person to a registered person have been brought under RCM.
• Supplies from an unregistered person. Separately, when a registered person receives specified supplies from a supplier who is not registered under GST, the recipient can be liable to pay tax under RCM in place of the (non-existent) charge from the supplier.

Self-invoicing under RCM

An unregistered supplier cannot legally issue a GST tax invoice — they are not registered to charge GST in the first place. So when a registered recipient owes tax under RCM on a supply from such a person, the recipient must raise a self-invoice for that supply. This self-invoice stands in for the supplier's invoice: it documents the value of the supply, the applicable rate, and the tax the recipient is about to pay on their own behalf.

Self-invoicing is not optional paperwork — it is the document that anchors both the RCM payment and any subsequent input tax credit claim on that payment.

How RCM interacts with input tax credit

Paying GST under RCM does not automatically mean the recipient loses out — if the underlying purchase is for business use and is not on the Section 17(5) blocked-credit list, the recipient can generally claim input tax credit on the tax paid under reverse charge. The key difference from a normal supplier invoice is timing: because there is no supplier-filed GSTR-1 entry to populate your GSTR-2B, ITC on an RCM payment is claimed based on your own payment and self-invoice, not on a document that flows in from someone else's return.

Why RCM liability must be paid in cash

One rule trips up a lot of businesses handling RCM for the first time: the tax payable under reverse charge must be paid in cash — through the electronic cash ledger — and cannot be settled by adjusting an existing input tax credit balance, even if that balance is otherwise perfectly usable against normal output tax. Once the RCM amount has actually been paid in cash, the recipient can then claim it as ITC (subject to the usual eligibility rules) and use that resulting credit against other liabilities going forward. The cash-only step is specifically for the initial RCM payment itself.

Checking a counterparty before an RCM decision

A large share of RCM questions in practice reduce to one factual check: is this supplier registered under GST, and is their registration active? A GSTIN verification lookup answers that immediately, along with the taxpayer's constitution and registration date, which is useful context when deciding whether a payment to an individual or small firm needs RCM treatment.

Keeping RCM entries reconciled alongside your regular GSTR-2B position, and against the filing calendar in GST return due dates 2026, keeps RCM from becoming a year-end surprise.

GET https://gstinapi.com/api/get-taxpayer-info/27AAACR5055K1Z7
X-API-Key: YOUR_API_KEY

// "status": "Active" confirms the counterparty is a registered, live GSTIN —
// the first fact you need before ruling RCM in or out.

Frequently asked questions